Japan's biggest labour group seeks midpoint target of 6% for 2027 wage increase talks

Japan's largest labor union, Rengo, has proposed a more ambitious wage target of 6% for 2027 during the upcoming annual labor negotiations. This represents a significant shift from previous years, when Rengo had called for wage increases of at least 5%. The move aims to boost wage growth momentum, as Japanese workers have secured average pay gains above 5% for the past three years due to labor shortages.

Rengo, which represents approximately 7 million workers, sets wage targets that guide its member unions. The new 6% midpoint target, which includes a 4% base pay increase, is intended to convey that 5% should be viewed as a minimum rather than a target. However, economists expect actual wage settlements in 2027 to remain similar to this year's level of around 5%.

While robust pay growth may help lift inflation towards the Bank of Japan's 2% target, stronger wage gains could pose risks if they lead to a wage-price spiral and push inflation above the central bank's target. Japanese wages were stagnant for decades until 2022, when rising raw material costs pushed up inflation and forced firms to compensate employees with higher pay.